Am I in the 40% tax bracket?

Plasticman

lipidicman wrote:

You must earn around £37000 gross pa
Income over around £31,400 is taxed at 40%
So yes you are a higher rate tax payer and your bank interest will be taxed at the higher rate

You can earn £32,400 PLUS your personal allowance of £4,895 before getting taxed at 40%. Therefore you can earn £37,295 before paying 40% tax - you are probably just under this.

Pension contributions can also be taken out before tax is calculated - another bonus if you are getting close to that 40%!!

Plasticman

Whoops Elaine - you beat me to it!

Bordera

Matthew2005 wrote:

I earn £250k a year am I a higher rate tax payer?

Althought this may have been a spoof question, I think the correct answer should be "not necessarily".

It depends on a number of things, but especially on how good your tax and investment advisors are.

robnye

if i rememeber correctly the bank wont take tax from interest at the higher rate..... you have to inform the inland revenue of that yourself....... (although they dont worry too much if it is under £25 per annum - not official figures)

cos my bank only takes standard 22% tax on interest

Bordera

banks normally deduct 20% from your interest, so if the interest you get is taxable at higher rates you will liable to pay the Inland Revenue an additional 20%. And they will expect you to tell them about it.

lush_walrus

Wow thanks everyone for all of that advice.

Elaine_Wilson wrote:

Just as a matter of interest why do the bank want to know? Will they give you some special deal if you pay tax at 40% or is it just that they want to sell you some investment with high charges?

I'm not sure why the bank wanted to know, I was opening a new account at the time and it was one of their questions.

The whole process forced me realise how little attention I pay to my finances still!!! Simple questions such as how much do I earn a year I couldn't answer, as all payrises and salary negotiations have always been based on what I have wanted to take home and instructions to accountants have been made on the same basis! Believe it or not I'm even paid by cheque rather than straight into my account!!!!

It sounds like my pay is quite close to the mark, so inevitably I will be needing to pay 40% on my accounts. What a bore if I have to fill in a form for the sake of paying tiny amounts of extra tax!!! Can I just let inland revenue know or is it a case of filling in a self assesment form every year?

Thanks again everyone. x

lush_walrus

Bordera wrote:

Althought this may have been a spoof question, I think the correct answer should be "not necessarily".

It depends on a number of things, but especially on how good your tax and investment advisors are.

Wow I really am learning things!!!! How the hell can anyone manage that. I knwo that directors can take directors fees etc and self employed account for expenses, soooo much to learn and so little time!!

robnye

up to a point you need to tell the inland revenue.....

up to last year i completed a self assessment form each year, but they have now moved me onto the 'complete one every 2/3 years'

but as i have increased the amount of tax free giving..... they owe me money.... ...... so i shall be informing them.....

Stonk

Wow I really am learning things!!!! How the hell can anyone manage that. I knwo that directors can take directors fees etc and self employed account for expenses, soooo much to learn and so little time!!

Don't worry - it was intended humorously. You'd be on wholly insecure ground with the Inland Revenue if you paid only basic rate tax on an income of £250K. To acheive this you would almost certainly have been pushing "tax avoidance" (legal) into "tax evasion" (illegal) territory, and they'd be investigating in a flash.

Directors' fees are taxable. You can only claim legitimate business expenses; if you claim £200K expenses a year you can be sure they will start asking difficult questions.

There are many little tweaks that can be done in the way of tax efficiency, but no amount of tweaking is going to bring £250K legally into the basic rate band!

lipidicman

lipidicman wrote:

You must earn around £37000 gross pa
Income over around £31,400 is taxed at 40%
So yes you are a higher rate tax payer and your bank interest will be taxed at the higher rate

Ok it is £32,400 + £4,895 = £37,295 for 05/06

I was trying to be helpful too quickly and went on figures from a less than reliable website - should have gone to the IR site directly. Very sorry for that

So as the posters above said - you are close to the boundary. Time to put some money in a pension maybe. You need to get your figures together.